German Construction Activity Down at Slower Rate

Kimberly Watson, Editor in Chief

September 10, 2012 /

The downturn in Germany’s construction sector continued in August. Despite an accelerated decrease in incoming new orders, the total level of activity fell at a slower rate. There were also corresponding reductions in employment and purchasing activity as companies adjusted to decreased workloads, while sentiment regarding future performance deteriorated further. Elsewhere, input cost inflation slowed to a two-and-a-half year low.

The seasonally adjusted Germany Construction Purchasing Managers’ Index (PMI) – a singlefigure snapshot of overall activity in the construction economy – posted a four-month high of 47.8 in August, up from 44.6 in July. That signalled a further (albeit weaker) decrease in total building activity, extending the current sequence of decline in the sector to five months.

In line with the overall trend in activity, rates of contraction slowed across each of the broad categories of construction in August. In fact, the latest reductions in home-building and civil engineering activity were the weakest in the past four months. Overall, work on commercial projects contracted at the fastest rate during the month.

August saw a weakening trend in new orders placed with German constructors, which fell at the fastest rate in the current five-month sequence of decline. That was partly attributable to the postponement of orders by clients, according to anecdotal evidence.

Staffing numbers at German constructors decreased for only the second time in the past 20 months during August, having also fallen in February. The rate of net job losses was faster than that recorded six months prevously, though still only modest overall.

The quantity of materials purchased by constructors in Germany also decreased on the month, following a stagnation in July. Suppliers’ delivery times nevertheless continued to slow on average, stretching the current period of lead-time lengthening to 29 months. That said, the rate of deterioration in vendor performance was the least marked since July 2010.

Input price inflation slowed notably during the latest survey period, more than offsetting a slight acceleration in July. The rate of growth in average purchase prices was only modest by the historical
standards of the series, and the slowest for two-anda-half years. A drop in the cost of steel contributed to the reduction in inflationary pressures, according to reports from panel members.

German constructors remained pessimistic about the 12-month outlook for activity levels in August. Moreover, the overall mood was the most downbeat since last December. A number of factors were noted by respondents as having the potential to weigh on output in the year ahead, particularly low public sector spending.